Three flashpoints in three parts of the world in just one day – and a convincing economic alternative remains elusive
Here is the news, in three parts. Tens of thousands of European workers take to the streets in a historic concerted action to protest soaring unemployment and unprecedented austerity. The Bank of England's Mervyn King warns that Britain's slump will be longer and more painful than he and the government had imagined. American newspapers burst with talk of a looming "fiscal cliff" of tax rises and spending cuts: if the squabbling politicians in Washington fall off that New Year's eve ledge, runs the conventional view, they will bring the US and the world economy crashing down with them.
Three flashpoints in three distinct parts of the global economy in just one day. There was a time when even one of these would have been guaranteed front-page fodder, but four years into this slump – the worst the west has faced since the 1930s – we are well used to bad news coming in threes, fours or more. And it is easy to see common threads drawing together these separate crises. First, it is slowly dawning on policy-makers in each region just what a mess they are in. Mervyn King warns that, five years after the collapse of Northern Rock, Britain is still only halfway through its crisis – even while Angela Merkel talks of another half a decade of misery in the eurozone. Even in America, which on headline economic figures would appear to be best-off, the unemployment rate is stuck nearly two percentage points above where Barack Obama's top advisers forecast it would be by now. But it is not just the scale of the slump, it's also the sense among policy-makers of having run out of options.
In Wednesday's inflation report press conference, Mr King hinted yet again at the shortcomings of the bank's policy of pumping more money into the bank system. He and his colleagues have chucked £375bn at the economy as part of their quantitative easing (QE) programme – the efficacy of which can be crudely judged by the fact that Britain looks likely to enter a triple-dip recession. The governor's opposite number in Washington, Ben Bernanke, has got round the ineffectiveness of the Federal Reserve's QE programme by getting more and more experimental – and less and less convincing. In the Fed's last major intervention, just a few weeks before the presidential elections, Mr Bernanke promised to keep on pumping $40bn each month into the mortgage-lending market, until the jobs market recovers. There is a link between unemployment and mortgage debt, but the Fed is definitely taking the long road to recovery. As for the eurozone, the strike action only confirms what the figures suggest: that austerity is hurting rather than working. And yet the only European solution is to keep doing more of the same, as summed up this week by chief economist at Standard Chartered bank, Gerard Lyons: "Cut. Economy shrinks. Firms don't spend. People can't. Debt dynamics worsen. So cut."
Some caveats need to be made at this point. Taking after Tolstoy, each of these economic disaster zones is unhappy in its own way. Even with the eurozone, Spain's bust was caused by a housing bubble, Greece's by a profligate government. Second, Barack Obama is on a different path from Angela Merkel and David Cameron. The president has gone for a too-small stimulus, and has got a too-small recovery as a result. In Europe, the conventional solution has been to go for austerity, producing outright recession or depression. Neither of these destinations are pleasant, but one would rather be in Washington than Athens.
But still, the similarities are striking. In Greece and Italy, the installation of technocrat governments has brought on grumbling about a democratic-deficit; in Britain, the government makes no bones about outsourcing reflationary policy to Mr King and his technocrats. The gap between the rich and the rest has got ever wider. And in all cases, the outline of a convincing economic alternative – beyond either austerity or Keynes-lite – remains disastrously, dangerously elusive.
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